Caterpillar (NYSE:CAT) touched 52-week highs in early trading but closed -1.1%, near lows of the day, after Fitch Ratings revised CAT's outlook to Negative from Stable on concerns about the extended downturn in the company's machinery markets.

Fitch says CAT could face challenges in rebuilding its operating and financial performance, and that a slow recovery in demand could prevent the company from returning to stronger credit metrics; even if the recovery is strong, free cash flow could be constrained if CAT fails to fully realize benefits from recent restructuring moves.

CAT launched a restructuring program in 2015 that aims to cut costs by $1.5B/year; shares have gained 42% YTD even as sales have declined for eight straight quarters and the company recently warned that 2017 forecasts seemed too optimistic.

Caterpillar (NYSE:CAT) is the Dow's best performer YTD, surging 43%, and has jumped 15% since the election, as investors see the company as a prime beneficiary of Pres.-elect Trump’s promises to boost infrastructure spending and revive the mining industry, but Macquarie's Sameer Rathod says the optimism has gone too far.

Investors have paid little heed to management’s assertion last week that analyst consensus for 2017 EPS of $3.25 on revenue of $38B was "too optimistic."

Rathod thinks the U.S. earth-moving equipment market could improve in 2017, but they still rate CAT at Underperform with a 12-month stock price target of $58.50, which implies a 40% plunge from current levels, saying CAT's global footprint - it derives just 40.9% of its revenue from the U.S., along with exposures of 8.4% to China, 5.5% to Canada and 3.5% to Brazil - could end up hurting the company after Trump becomes president.

Free trade has "provided secular demand for CAT’s end markets,” the analyst says. “Pres.-elect Trump’s views on killing trade deals as well as being aggressive on anti-dumping duties would be detrimental to global growth and trade and is likely going to be a negative for aggregate commodity demand.”

For 2017 EPS, views $3.25 "too optimistic considering expected headwinds," noting that at $38B, sales are approximately $1B lower than 2016 outlook, resulting in a variable margin headwind of $350M-$450M. Additionally observes short-term incentive compensation for employees projected to come in $500M-$600M higher than in 2016 and for Cat Financial to be unfavorable at around $100M. On the tailwind side, sees $300M-$400M in cost reduction carryover resulting from restructuring activities, and further, cost reductions and operational improvements to be favorable at $300M-$500M.

Deutsche Bank analyst Nicole DeBlase said the machinery group could be due for a breather following its 12% post-election rally, but she still views Caterpillar as her top pick on a relative basis given her "very high conviction" that EPS is bottoming.

The analyst, who sees a combination of restructuring, a recovery in mining and infrastructure stimulus to drive EPS growth in 2017, kept a $102 price target on Caterpillar shares.

Deere (DE+11.3%) powers to all-time highs following its easy FQ4 earnings and revenue beats, as factors ranging from machinery pricing to lower overheads spending helped it report a much smaller-than-expected decline in quarterly earnings, CFO Raj Kalathur said during today's earnings conference call.

DE forecasts FY 2017 sales of its farm and construction equipment will fall by 1% Y/Y, but analysts were expecting sales to drop by ~3% after sliding 9.3% to $23.4B in 2016, and predicts next year's profit will slip by just 1% following a 21% decline in 2016 to $1.5B.

DE also said prices for new and used equipment firmed in the quarter, taking pressure off dealers to offer discounts that squeeze margins.

Caterpillar (CAT+2.7%), which has some market overlap with DE, surges to its best levels since December 2014, while AGCO (AGCO+3.4%), Lindsay, CNH Industrial (CNHI+4.7%) and Tractor Supply (TSCO+0.8%) also are higher.

Total sales in the energy and transportation segment tumbled 28%, worse than September's 25% drop, including respective declines of 33%, 32%, 29% and 21% in power generation, transportation, industrial, and oil and gas products.

Some companies will likely be allowed to repatriate billions of dollars of profits at a low tax rate. Major beneficiaries could include Nike (NYSE:NKE), Procter & Gamble (NYSE:PG), Caterpillar (NYSE:CAT), Visa (NYSE:V) and Mastercard (NYSE:MA).

Neuberger Berman's Joseph Amato says that a Trump administration will be better for stocks than bonds. "If [Trump] takes a measured approach and gets some level of concessions for U.S. workers, the trade concerns may be much ado about nothing," Amato says. "But that's a big if."

Investors are betting that some big U.S. manufacturers such as Caterpillar (CAT+7.7%) could benefit from possible changes in energy, climate and tax policies in the Trump administration.

CAT is "looking forward to building those bridges," says VP for global government and corporate affairs Kathryn Dickey Karol, adding that the company is excited about Trump’s calls for improving the U.S. transportation network.

CAT says it will continue to push for adoption of the Trans-Pacific Partnership during the remaining days of the Obama administration; Martin Richenhagen, Chairman and CEO of farm equipment maker Agco (AGCO+0.9%), says he is concerned about Trump’s repeated support for trade protectionism during the campaign.

CAT noted specifically that construction activity and construction equipment sales in North America during H2 2016 would come in lower than expected in its previous 2016 outlook, and that “this weakness could continue into 2017.”

Although sentiment around mining has "definitely improved, there are still many idle trucks on customer sites, and we have not seen an increase in orders for new equipment," CAT said.

Barclays notes that revenues declined in all segments, but operating margins rose in construction and energy and transportation while falling modestly in resources - a pattern the firm says is not typical for machinery companies, a disconnect it suspects is due to substantial and solid restructuring.

CAT cautiously points to potentially optimistic signs for 2017 - commodity prices are off their lows, there are signs of improvement in the Chinese construction market, and construction sales in Russia and Brazil may be bottoming - but it also predicts construction activity and equipment sales in North America will continue falling short of predictions, and notes continued uncertainty in Europe in the wake of the U.K.’s Brexit vote.

CAT's $0.85 in EPS and $9.16B in revenues for Q3 represent a significant Y/Y decline from a respective $1.05 and $10.96B, yet the stock has made significant gains over the last 12 months, suggesting the market is betting on conditions improving soon for the company even as the lower guidance indicates that is not going to happen, Martin Tillier writes.

Q3 EPS excluding restructuring costs of $0.85 compares to $1.05 a year ago, on revenue of $9.2B vs. $11B a year earlier.

"Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged," CEO Doug Oberhelman said. "However, there were a few bright spots this quarter... I'm pleased with how Caterpillar has responded and our team's incredible focus on reducing costs and pulling through profit despite sluggish end markets."

Guidance for 2016: Full-year earnings of $3.25 a share (vs. $3.55 previously), on revenue of about $39B (vs. $40B-$40.5B). Restructuring costs, which were anticipated to be about $700M, are now expected to be about $800M.